These numbers stand in stark contrast to the private sector, which gained 1.6 million. The December unemployment rate fell to 8.5% after the economy added 200,000 jobs, the Labor Department reported Friday.

Things were not as rosy in the public sector. Some 181,000 local workers and 63,000 of their state peers were let go last year as the economic downturn continued to wreak havoc on government budgets. Teachers accounted for 113,000 of those losses.

Federal workers, meanwhile, have not fared as badly. They lost only 36,000 jobs last year, with the vast majority of them coming from the U.S. Postal Service, which is on the brink of insolvency.

State and local workers have seen their numbers dwindle throughout the Great Recession. Some 656,000 have been laid off since their employment peak in mid-2008 as governments try to cope with plummeting tax revenues, according to Greg Daco, principal U.S. economist at IHS Global Insight.

"These significant job losses mean fewer teachers in schools, and thus more students per classroom," Daco said. "It also means that state and local governments will face increasing difficulties in providing for still-high demand for public services, especially as federal assistance has all but dried up."

But the fortunes of state and local workers are starting to diverge. State financial pictures are beginning to brighten as the overall economy gradually improves and tax revenues start to rise. After a brutal July, states have slowed their rate of layoffs. In December, it was flat.

Local governments, however, are continuing to downsize. They rely more on property taxes, and home assessments take a while to adjust. So they are still feeling the pain of the housing collapse.

Some 14,000 local workers got pink slips in December, the same number as in November and 5,000 more than in October. About 9,000 of these were educators.

And the trend isn't likely to stop in 2012, as municipalities and some states continue to struggle. City finance officers are projecting more spending cuts -- largely coming from personnel reductions -- this year, according to a National League of Cities survey.

Residents are bearing the brunt of these reductions. Schools, for instance, are laying off nurses and speech pathologists, turning instead to temp workers to cut costs. Now, as a sign of a continuing budget squeeze, some are providing speech services remotely, said Tig Gilliam, chief executive of Adecco, a staffing agency. Children work with pathologists over a computer.

Gilliam is seeing more and more municipalities in fiscal trouble. And that will hurt consumer spending and the economy in general.

"We're going to have a government drag on jobs throughout the year," he said.